Explained: In election year, what is the politics and economics of the budget?https://indianexpress.com/article/explained/on-account-of-vote-in-election-year-what-is-the-politics-and-economics-of-the-budget-5565543/

Explained: In election year, what is the politics and economics of the budget?

Budget 2019: What government sought to achieve with farmer support scheme, how far middle class will benefit from tax rebate, and other takeaways.

Explained: In election year, what is the politics and economics of the budget?
There were, thus, apprehensions that the government could go for broke in this budget, spending on sops to woo all constituencies — including the farm sector, the middle class, the unorganised sector, and the youth. (Illustration: C R Sasikumar)

With the Union Budget 2019, here’s what the government sought to achieve with farmer support scheme, how far the middle class will benefit from tax rebate, and other takeaways.

Going into the interim budget Friday, what were the fears from the point of view of fiscal discipline and prudent resource management?

A high-stakes Lok Sabha election is less than three months away, a major agrarian crisis has left farmers in large swathes of the country in distress, and a government that came to power saying it would create jobs for crores of youths has largely failed to deliver on this promise. There were, thus, apprehensions that the government could go for broke in this budget, spending on sops to woo all constituencies — including the farm sector, the middle class, the unorganised sector, and the youth.

There was also speculation that some form of Universal Basic Income or UBI scheme, which would call for huge funding, would be announced — especially after some pundits read Congress president Rahul Gandhi’s promise of a nationwide Minimum Income Guarantee scheme — if voted to power in the elections — as a “preemptive strike”.

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These fears existed despite the fact that by convention, an interim budget sticks to allocations for spending on salaries, interest payments, and ongoing schemes or programmes for the first four months of the fiscal before the new government takes over.

And were there any specific expectations from the budget?

Again, given the reality of the looming Lok Sabha elections, measures for financial support to farmers hit by poor crop price realisations were widely anticipated. There were also expectations of tax breaks for the middle class, which is a constituency for the ruling BJP.

In specific terms, what does the Budget have for farmers, who are perhaps the most restive group in India today?

The Finance Minister has announced a Pradhan Mantri Kisan Samman Nidhi, or assured income support scheme for small and marginal farmers across the country — those having cultivable land up to two hectares. This will be Rs 6,000 annually, which will be transferred directly into their bank accounts in three equal instalments of Rs 2,000 each. The scheme will be effective retrospectively from December 1, and the first instalment will be paid before the end of March this year.

But Rs 6,000 a year works out to just Rs 500 per month for the individual farmer. To what extent can that sum address the farmer’s concerns?

The government says that this would provide assured supplemental income to the most vulnerable farmer families, and would also meet their important needs before the harvest. What the government may have in mind is expenses towards buying seeds, fertilisers, and labour, for instance. It can, of course, only be of limited help in meeting the cost of farming or easing the debt burden of farmers. But given that this was just an interim budget, there was also very little leeway available to bump up this assistance. To that extent, the support scheme could be political signalling — to assuage farmers, and to assure them that the government is mindful of their concerns.

Also Read: Union Budget key points explained: Sops for farmers and middle class ahead of elections

The other big takeaway is the tax proposals. What’s in them, whom will they benefit, and how?

Much of it centres around lowering the tax burden of the ordinary salaried class though there are tax breaks for home buyers too. For home buyers, it is essentially on account of relief from the notional tax which they were required to pay on their second home which was unused.

To what extent can individuals with taxable incomes higher that Rs 5 lakh a month benefit from the tax rebate offered in the interim budget?

Their tax savings will work out to up to Rs 3,000 annually on account of an increase in the standard deduction limit from Rs 40,000 now to Rs 50,000. They can also benefit if their interest income is higher than Rs 10,000 annually, thanks to the threshold limit on Tax Deducted at Source (TDS) being raised to Rs 40,000.

What is there in the budget for the unorganised sector?

India’s unorganised sector has 42 crore workers including street vendors, farm workers, ragpickers, and domestic helps. That is a very large constituency to address. The government has now proposed a mega pension scheme, the Pradhan Mantri Shram-Yogi Maandhan for such workers whose monthly income is up to Rs 15,000. The proposed scheme envisages a monthly pension of Rs 3,000 which will kick in at age 60. The monthly contribution for the social security cover has been kept low, with the government offering to put in a matching contribution.

Why has the Finance Minister chosen to boost the real estate sector? What does he hope to realise, and how?

The real estate sector has been facing a downturn over the past several years, which was further aggravated by the demonetisation exercise of November 2016. It is a sector that employs huge numbers of workers in a vast range of formal and informal industries. A large chunk of these workers were hit after the notes ban and the slowdown in growth, which impacted many realty firms. Real estate is a sector which has a strong multiplier effect — if it does well, industries like steel, cement and paints also do well, and in turn create jobs, and boost revenues and growth.

Has Friday’s budget hurt Prime Minister Narendra Modi reputation for being a fiscal deficit ‘hawk’? Is it a sop/largesse budget?

The fiscal deficit for the current fiscal has been revised upward to 3.4% from the budgeted target of 3.3% — a slippage of just 0.1 per cent. In the last fiscal, against the targeted 3.2%, the government reported a deficit of 3.5% of GDP. While this record at the fag end of his term will take some sheen off Modi’s ‘fiscal hawk’ record, it is not a throwaway budget or a showering of sops — in fact, it could hardly have been so given the risk of a major slippage on the fiscal front, with its repercussions on interest rates and inflation.

But is there a growth/deficit tradeoff in the budget proposals?

Not really. This time, as the government has pointed out, the overriding need was to provide income support to farmers which meant breaching the fiscal deficit target. The GST regime has still not settled fully. The measures announced today aren’t exactly a stimulus — even though there are some who reckon that some of the steps announced could boost consumption, i.e., prompt consumers to spend a little more as their tax burden eases.

The Congress has said the budget is not a vote on account but an “account for votes”. How valid is this criticism?

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The criticism may be on account of the government’s attempt to woo farmers and the middle class through fiscal support and tax breaks. What the party has implied is that instead of sticking to just earmarking funds for essential spending by various ministries and departments and on ongoing programmes or schemes, the government has extended itself in offering sops to elicit political support ahead of elections.